News on 2021 Child Tax Credit Refunds, IRS Hiring Plans

Here are important updates regarding the changes to the Child Tax Credit and recent hiring plans from the IRS.

Important News on Child Tax Credit Refunds

Recently, there were changes made to the child tax credit that will benefit many taxpayers. As part of the American Rescue Plan Act that was enacted in March 2021, the child tax credit:

  • Amount has increased for certain taxpayers
  • Is fully refundable (meaning you can receive it even if you don’t owe the IRS)
  • May be partially received in monthly payments

The new law also raised the age of qualifying children to 17 from 16, meaning some families will be able to take advantage of the credit longer.

The IRS will pay half the credit in the form of advance monthly payments beginning July 15. (You may have received a check or deposit already.) Taxpayers will then claim the other half when they file their 2021 income tax return.

Though these tax changes are temporary and only apply to the 2021 tax year, they may present important cash flow and financial planning opportunities today. It is also important to note that the monthly advance of the child tax credit is a significant change. The credit is normally part of your income tax return and would reduce your tax liability. The choice to receive the child tax credit in advance will affect your refund or amount due when you file your return. To avoid any surprises, please contact our office.

Qualifications and how much to expect

The child tax credit and advance payments are based on several factors, including the age of your children and your income.

  • The credit for children ages five and younger is up to $3,600 –– with up to $300 received in monthly payments.
  • The credit for children ages six to 17 is up to $3,000 –– with up to $250 received in monthly payments.

To qualify for the child tax credit monthly payments, you (and your spouse if you file a joint tax return) must have:

  • Filed a 2019 or 2020 tax return and claimed the child tax credit or given the IRS your information using the non-filer tool
  • A main home in the U.S. for more than half the year or file a joint return with a spouse who has a main home in the U.S. for more than half the year
  • A qualifying child who is under age 18 at the end of 2021 and who has a valid Social Security number
  • Income less than certain limits

You can take full advantage of the credit if your income (specifically, your modified adjusted gross income) is less than $75,000 for single filers, $150,000 for married filing jointly filers and $112,500 for head of household filers. The credit begins to phase out above those thresholds.

Higher-income families (e.g., married filing jointly couples with $400,000 or less in income or other filers with $200,000 or less in income) will generally get the same credit as prior law (generally $2,000 per qualifying child) but may also choose to receive monthly payments.

Taxpayers generally won’t need to do anything to receive any advance payments as the IRS will use the information it has on file to start issuing the payments.

IRS’s Child Tax Credit Update Portal

Using the IRS’s child tax credit and update portal, taxpayers can update their information to reflect any new information that might impact their child tax credit amount, such as filing status or number of children. Parents may also use the online portal to elect out of the advance payments or check on the status of payments.

The IRS also has a non-filer portal to use for certain situations.

In short, if you are set up to pay quarterly estimates, the advance of the child tax credit was not factored into your estimates.  Therefore, I would suggest you immediately opt out of the advance.

If for whatever reason you do not opt out, let us stress again that your refund will be reduced or the amount you owe will be increased by taking the advance.

If you receive any advance, you must keep track of them for preparation of your 2021 tax return – the same as the stimulus payments.

IRS Small Business and Criminal Divisions Will Hire Thousands of Auditors by September

At a New York University conference, the co-commissioners of IRS’s Small Business/Self- Employed Division (SB/SE), and the commissioner of the Criminal Investigations Division (CI), announced that they will be hiring thousands of auditors by the end of September 2021.

President Biden and the House Appropriations Committee have both submitted budget increases for IRS for fiscal year 2022 – $1.7 billion more than IRS received in fiscal year 2021.

IRS SB/SE co-commissioners De Lon Harris and Darren Guillot spoke to the conference. “We’re going to be ready to go, as soon as that budget hits… to start bringing in what could be double the number of folks that we are looking at bringing in this year, just for exam alone.” They noted that they plan to hire 1300 field revenue officers, 400 tax compliance officers who will be available for “in person audits” (formerly called “office audits”), and 518 automated collection (ACS) phone representatives. Guillot said that, after taxpayers receive an IRS notice threatening to garnish wages or levy property, “you expect when you call that [ACS] phone number that we’re going to answer,” he said.

SB/SE expects to use new personnel to increase compliance in the following areas: fuel tax, syndicated conservation easements, and employment taxes.

Computer Recycling Program

In an effort to support our environment, provide our customers with a cost-effective, easy way to dispose of their unused computer equipment and comply with local equipment disposal laws, we are announcing a new computer equipment recycling program. Here’s how it works:

At your request, we will recycle your used computer equipment for you. Computers will have their hard drives rendered inoperable (so that there is no possibility of anyone extracting data from them). We will then transport your equipment to a certified computer equipment recycling center for proper disposal.

To encourage as much participation in this program as possible, we are keeping the fee for this service to a minimum. To have your computers recycled, simply:

  1. Complete the form below, indicating the quantity of each item to be recycled
  2. Drop your equipment off at our office (along with this form), or give your equipment to one of our staff persons when they are at your office for another engagement
  3. We will send you an invoice for the service fee

Computer Equipment Recycling Program (PDF)

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Craig Covington

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Craig serves as a Technical Consultant on the Canon Capital Technologies team, guiding business clients through all aspects of Managed IT Services, Network Security, Data Backup & Recovery, and Help Desk Support. He was admitted to the company as a unitholder (owner) in 2019 and leads sales and marketing for the Technologies business unit. He has a business degree from Delaware Valley College and an MBA in Marketing from LaSalle University.  Prior to joining Canon Capital in 1998, Craig worked as a general manager of a car wash, as a controller of a heavy equipment company, and as a senior technician for a major home improvement company.  Craig is a Microsoft Certified Professional.  Craig also serves as executive director of Healthy Neighbors International, a non-profit medical missions organization serving in Nicaragua. Craig resides in Doylestown with his wife and has four children. He enjoys spending time with his family.

Additional Ways to Protect Yourself from Unemployment Fraud

We recently shared information on how to avoid falling prey to the recent uptick in unemployment compensation fraud. The Pennsylvania Department of Labor & Industry has provided these additional tips to protect yourself and your employees from identity thieves and hackers.

‘When an employer responds to the notice of claim filed, the Department does not need any of the person’s real employment information for identity theft situations. They are just looking for a response that tells them the claim is fraudulent and should not have been opened. The fields do not need to be completed unless the system requires it (like start & end date, termination date), and when that happens, you can just enter the current date.  Do not spend time researching actual hire dates because this is not a real claim.

The one field you should accurately complete is the reason for separation.  For identity theft claims, you should enter the reason for separation as “Still working full-time.” When the system receives the response, it will create an issue on the claim which will prevent payment if it is not already being prevented by some other reason.’

Here are the steps to submit your responses via the new benefits system:

Reporting Fraud – BenMod.

  • From the Unemployment Services widget, click “More Unemployment Services” and then the “Notice of Separation” link.
  • Choose the Claimants tab.
  • After locating the individual for whom you wish to report, click on the “Needs Response” link.

If you are not able to log into the new benefits system, enroll here, or respond using SIDES e-response: Reporting Fraud – SIDES

If you are unable to log in to the system, simply respond via the hard copy of your paperwork by writing “fraudulent claim” across the front of the form and mailing it to the department.

If you have hired a Third-Party Administrator (TPA) to care for your unemployment claims, disregard any Notices of Application because the TPA will be handling these for you.

The Pennsylvania Department of Labor & Industry has also advised the following:

  • “Appealing the financial determination is not the appropriate way to report a fraudulent claim to us, and it’s inundating our monetary appeals staff. Please do not appeal these determinations; use the above steps to report the fraud to us.”
  • “As the employer, you should simply respond to the claim notices but not also file a fraud report using our website’s “Report Fraud” link. The individual affected should use the “Report Fraud” link to file a report.”
  • “If a payment has already been made on that claim, payments will continue every other week until a staff member is able to deny the claim. Ultimately, you will not be charged for benefits paid to fraudulent, identity theft-related claims. Once benefits are denied, an overpayment will be set up, which credits your account.”
  • “Reporting the same claims multiple times is tying up resources. For as many of these false claims as you are receiving, we are receiving much more.  Please do not duplicate your report to us no matter how long it has been since you first reported it.”

The Pennsylvania Department of Labor & Industry has additional resources concerning unemployment compensation fraud that you can access here. Forms can also be completed over the phone by calling the Pennsylvania Unemployment Compensation Fraud Hotline at 800-692-7469.

If we can be of any assistance, please contact us online or call 215-723-4881.

Churches in Pennsylvania: Yes, You Can Apply for the Employee Retention Credit

The Employee Retention Credit (ERC) is a form of COVID-19 relief that can be paid as a payroll tax credit, including to eligible Pennsylvania churches. These ERCs are substantial and well worth the time to pursue. Eligible churches have the potential to receive reimbursement of up to 50% of $10,000 paid to each non-clergy employee in 2020 and up to 70% of $10,000 paid to each non-clergy employee per quarter in 2021.

Pursuing the ERC is not ideal for religious organizations that employ only members of the clergy, because clergy members’ FICA-exempt wages are not eligible to be included in the calculation of the credit. Other religious organizations whose principles simply object to mechanisms like tax credits or stimulus money may intentionally ignore the ERC. For those in leadership positions of all other religious organizations, read on.

Church financial leaders may have overlooked the ERC due to some common misconceptions.

It’s not worth pursuing the ERC because we only employ a few part-time, non-clergy employees.

Part-time employees are eligible to be included in the ERC calculations and the credits are proving to be substantial.

We don’t qualify because our church did not experience a decline in revenue.

One popular misconception is that there is only one qualifying economic hardship test, which is based on a decline in revenue. There are multiple avenues for qualification, one of which does not involve economic hardship.

There’s another way for churches to qualify for the ERC

Many religious organizations did not experience declines in revenue throughout the pandemic, unlike many for-profit organizations. So, while it is correct that churches typically will not qualify for an ERC due to economic hardship, they may qualify under another of the hardship requirements: that their operations were “fully or partially suspended” because of Federal, State, or local governmental order.

At the outset of the COVID-19 pandemic, religious organizations in Pennsylvania were defined by Governor Wolf as essential organizations, with their activities segmented into two classes of operations: religious services and “covenants, retreats, and other gatherings.” In theory, this meant that churches could not be forced to close their doors for worship services. Through this lens, if a church voluntarily decided to pause in-person activities, they would not qualify for the ERC.

Despite churches designation as essential, Governor Wolf and the Pennsylvania Department of Health imposed further restrictions on the continuance of in-person operations. This meant that if a religious organization closed in-person worship services due to an inability to comply with governmental orders or compliance resulted in an effect that is greater than nominal to the organization, then the organization could qualify for the ERC.

The “essential” classification protected worship services from mandatory closures but the continuance of in-person operations was contingent upon adherence to governmental orders for in-person public health safety measures. ERC eligibility can be argued if an organization’s inability to adhere to the rules of the in-person order resulted in operational closure.

Church. It’s more than a worship service.

Churches cannot simply or easily be defined as an entity that provides a regular worship service. Churches serve many purposes, which is recognized by the phrase used by the Commonwealth,  “covenants, retreats, and other gatherings.” This terminology refers to all the activities of a church outside of holding a worship service. Many churches have operations that include daycare centers, nurseries, schools, professional services, legal services, personal financial services, faith-based counseling services, extracurricular and athletic activities, men’s and women’s groups, youth programs, and book studies.

The Internal Revenue Service recognizes that entities can have both essential and non-essential operations, affirming that the closure of non-essential operations immediately results in an ERC qualification if the affected operations are more than nominal to the organization:

“…an employer that maintains both essential and non-essential business operations, each of which are more than nominal portions of the business operations, may be considered to have a partial suspension of its operations if a governmental order restricts the operations of the non-essential portion of the business, even if the essential portion of the business is unaffected.” – Internal Revenue Service

An employer can still be eligible for an ERC if non-essential operations are continued remotely if the continued operations are not comparable to operations prior to the governmental order and the effect of the change in operation(s) can still be considered more than nominal to the business. Churches that launched remote services can qualify as well, although those who conducted services remotely prior to the pandemic will have a harder time substantiating qualification for the credit.

So, while it’s not too late to pursue the ERC if your church is interested in doing so it’s best to apply at your earliest opportunity. We are glad to help you through the process. Contact us online or call 215-723-4881.

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Canon Capital Technologies has put together a staff of talented, knowledgeable, and experienced technology consultants who pride themselves in providing the very best, yet sensible, solutions available for each business we work with.

Whenever your business needs help with applying technology to improve communications, boost productivity, or increase revenue, just call on our experienced staff of technology consultants.

In today’s fast paced, ever-changing, Internet-connected world, you can turn to us to help your business keep up with it all. You can rely on us to be there for you!